Daily Flows & Commentary BY THE CURVE TEAM –

Daily Flow & Insights – U.S. Inflation Skyrockets, Bank of Canada Makes a Move

Thursday, 14th July, 2022

Daily Flows

  • Flows were much stronger than standard yesterday with numerous ADI’s looking for funds and numerous investors looking to place.
  • NCD activity was particularly pronounced, with substantial interbank deposits. Margins varied quite significantly, reaching as high as +47 to retain funds. A BBB+ foreign branch bank is today offering +40 for new NCD’s, notably above standard market levels.
  • Solid bond flows continued yesterday, with a focus again on floating rate lines across the curve.
  • Several ADI’s have increased their TD rates today off the back of big overseas inflation and central bank announcements overnight. Market leading rates are holding firm for the moment, but we could see some volatility over the coming days.

U.S. CPI Nears Double Digits

  • Last night saw the release of CPI data in the U.S, which came in much hotter than expected.
  • CPI increased 1.30% MoM, which resulted in a headline read of 9.10% YoY, beating expectations of 8.80%.
  • CPI ex Food and Energy was down from the prior month, falling 0.10% to 5.90%. However, this beat expectations of 5.70%.
  • The Fed is now pushed into a tricky position, with markets now pricing a 50-50 chance of a 1% hike on the 28th of this month.
  • With Powell stating that the Fed has tunnel vision to combatting inflation, the possibility of a 1% hike becomes more probable. 75 basis points is looking like the minimum.
  • Recession fears are now storming through the market, with the the U.S. yield curve inverting. The 2Yr is trading at 3.155% whilst the 10Yr is now trading at 2.934% (at the time of writing).
  • With the USD being so strong, the fear of global recession is real.

Bank Of Canada Hikes

  • The Bank of Canada raised the cash rate by 1% overnight.
  • It comes as inflation breached 7% in May, and with worries of inflation spreading from the U.S., the Bank of Canada were forced to make a serious move.
  • The official statement from the BOC was “with the economy clearly in excess demand, inflation high and broadening, and more businesses and consumers expecting high inflation to persist for longer, the Governing Council decided to front-load the path to higher interest rates”.

Lawrence Vosper, Nicholas Allan

Curve Team